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Dallas Fed: Texas factory production at lowest point since recession

Dallas Fed: Texas factory production at lowest point since recession

A measure of manufacturing activity in Texas dropped to a six-year low in May, but plant managers reported modestly higher optimism for the latter part of the year, according to a monthly report Tuesday from the Federal Reserve Bank of Dallas.

The state production index, a key measure of factory activity in Texas, dropped to a reading of -13.5 in May from -4.7 the prior month, according to the Texas Manufacturing Outlook Survey. The lower negative value suggests that statewide manufacturing production contracted more sharply this month than last.

The production index tracks closely with the state’s broader economic cycles, and as such provides one of the most-current peeks at the health of the Texas economy. May’s reading was the gauge’s lowest since May 2009, in the midst of the recession.

The sharp slowdown in the energy sector, prompted by a sharp decline in oil prices over the past year, continued to curb production at a wide array of Texas factories. Measures of shipments, new orders and capacity utilization all reflected a distinct pullback that could persist into the near future.

Measures of employment and hours worked also dropped sharply in May, indicating more factory layoffs and shorter workweeks. Manufacturers supply roughly 9 percent of the state’s private-sector jobs, according to data from the Texas Workforce Commission.

Factory managers pulled few punches when discussing how bleak the current environment is. Measures of current business outlooks took on an even more pessimistic tone in May, although some managers suggested the drawdown might have stabilized.

“With some recovery of the price per barrel of oil, the general feeling is that our business impact has leveled,” a fabricated metal manufacturer said in anonymous comments complied by the Dallas Fed.

Expectations for six months out took an even more optimistic tone. While factory managers were a bit less gung-ho about general business activity for the latter half of the year, expectations for their own business prospects improved, the report showed.

“We’ve maintained the position that we need to give the oil market time to settle,” said a machinery manufacturer, “so our goal has been to survive until the third quarter. … We have numerous customers who have delayed purchasing product, and we are optimistic that they will begin ordering again in the third quarter.”